CPA downgrades forecasts for this year and next as inflation and lower growth take their toll

Construction growth is expected to be hit by rising costs and falls in investment despite output being well above pre-pandemic levels and buoyant activity in some sectors.

The Construction Products Association said activity is “robust”, with output 20% higher than before covid-19, but warned it was not “immune to the effects of the wider economy”.

The UK’s construction output is expected to rise 2.5% in 2022 and 1.6% in 2023. 

Its latest forecast for this year compares with a 2.8% increase predicted in May and a rise of 4.3% forecast six months ago.

CPA economics director Noble Francis said construction activity was “likely to remain strong near-term due to projects already signed up to, especially in the buoyant infrastructure and warehouse sub-sectors”. 

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He added: “Over the next 12 months the rapidly rising cost of living, the slowdown in economic growth and falls in consumer confidence and spending will undoubtedly impact on private construction investment going forward.” 

The industrial sector, which covers warehouse and factory activity, is expected to the fastest grown sector in the next two years. Output is forecast to rise by 15% in 2022 and 9.8% in 2023 because of the strength of online shopping and the need for stock after two years of supply chain issues. 

Infrastructure is expected to rise by 8.5% this year and 3.8% in 2023. This is because of long-term pipelines of work in regulated sectors, such as roads, rail, water and electricity. 

Private housing remains “buoyant” but how long for remains uncertain with the economy expected to contract in the fourth quarter of this year, the CPA said. Annual house price inflation will slow to 6% later this year and 2.5% in 2023. 

Repair and maintenance of private housing is expected to fall by 3% this year and 4% next year. It has been the “key driver” of construction output over the past couple of years, as people extend their homes. But it is the sector “most exposed to materials and products cost inflation”, the CPA said, and had been at a historic high early this year. This could mean it has “the potential for falling even harder than forecast”.